Question 1

Why is a stock exchange like NASDAQ considered a secondary market?

Accepted Answer

A)  It trades the second largest volume of shares in the world. 
B)  Shares sold on it are exchanged between investors without any involvement of the issuing corporation. 
C)  The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart. 
D)  NASDAQ is called a secondary market because NYSE is considered a primary market. 
A)  It trades the second largest volume of shares in the world. 
B)  Shares sold on it are exchanged between investors without any involvement of the issuing corporation. 
C)  The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart. 
D)  NASDAQ is called a secondary market because NYSE is considered a primary market.

Question 2

Investments by wealthy individuals and endowments is a major source of money for each of the following EXCEPT ________.

Accepted Answer

A)  private equity funds 
B)  hedge funds 
C)  venture capital funds 
D)  mutual funds 
A)  private equity funds 
B)  hedge funds 
C)  venture capital funds 
D)  mutual funds

Question 3

What is the most common type of firm in the United States and the world?

Accepted Answer

A)  sole proprietorships 
B)  partnerships 
C)  limited partnerships 
D)  corporations 
A)  sole proprietorships 
B)  partnerships 
C)  limited partnerships 
D)  corporations

Question 4

What are the main differences between the NYSE and NASDAQ stock markets?

Accepted Answer

The NYSE has a physical location, a geog

Question 5

Why is the stock price of a company an indication of the performance of the company's senior managers?

Accepted Answer

A)  Well-run companies are invariably highly profitable, which leads to a higher share price. 
B)  In general, people want to invest in a well-managed corporation, which will drive up the price of shares. 
C)  Investors who can see that a company is well-run will hold on to their shares, even if the company faces setbacks, since they know that the stock price will likely rise again. 
D)  Larger companies tend to be better run and so have higher stock prices. 
A)  Well-run companies are invariably highly profitable, which leads to a higher share price. 
B)  In general, people want to invest in a well-managed corporation, which will drive up the price of shares. 
C)  Investors who can see that a company is well-run will hold on to their shares, even if the company faces setbacks, since they know that the stock price will likely rise again. 
D)  Larger companies tend to be better run and so have higher stock prices.

Question 6

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions?

Accepted Answer

A)  These investment decisions determine whether the firm will add value for its owners. 
B)  These investments determine the long-term directions in which the company may move. 
C)  These investment decisions determine the corporation's mix of debt and equity. 
D)  These investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits. 
A)  These investment decisions determine whether the firm will add value for its owners. 
B)  These investments determine the long-term directions in which the company may move. 
C)  These investment decisions determine the corporation's mix of debt and equity. 
D)  These investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits.

Question 7

Which of the following is a measure of the aggregate price level of collections of pre-selected stocks?

Accepted Answer

A)  NASDAQ 
B)  S&P 500 
C)  NYSE 
D)  Euronext 
A)  NASDAQ 
B)  S&P 500 
C)  NYSE 
D)  Euronext

Question 8

You are a shareholder in a corporation which has elected subchapter S tax treatment. The corporation announces a profit of $6 per share, of which it retains $1 for reinvestment and distributes the rest as dividend payments. Given that the personal tax rate is 35%, how much tax must you pay per share?

Accepted Answer

A)  $0 
B)  $2.10 
C)  $1.75 
D)  $2.52 
A)  $0 
B)  $2.10 
C)  $1.75 
D)  $2.52

Question 9

Stella places a market order with her broker to buy 1,000 shares of OneWorld Corp. The broker buys 1,000 shares at $16.00 each, and sells them to Stella at $16.15 each. He also charges a commission of $12.00. What is the total dollar amount spent towards the bid-ask spread in this case?

Accepted Answer

A)  $162 
B)  $120 
C)  $210.00 
D)  $150 
A)  $162 
B)  $120 
C)  $210.00 
D)  $150

Question 10

The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case?

Accepted Answer

A)  by increasing the debt burden carried by the company 
B)  by raising the company's equity by encouraging new owners to take a stake in the company 
C)  by decreasing the ratio of equity to debt held by the company 
D)  by increasing the value of shares held by the existing owners of the company 
A)  by increasing the debt burden carried by the company 
B)  by raising the company's equity by encouraging new owners to take a stake in the company 
C)  by decreasing the ratio of equity to debt held by the company 
D)  by increasing the value of shares held by the existing owners of the company

Question 11

Which of the following is NOT a function of the board of directors?

Accepted Answer

A)  determining how top executives should be compensated 
B)  monitoring the performance of the company 
C)  answering to shareholders of the company 
D)  day-to-day running of the company 
A)  determining how top executives should be compensated 
B)  monitoring the performance of the company 
C)  answering to shareholders of the company 
D)  day-to-day running of the company

Question 12

In which of the following relationships is an agency conflict problem LEAST likely to arise?

Accepted Answer

A)  the relationship between a hire-car company and the persons who hire that company's cars regarding the treatment of those cars 
B)  the relationship between high-level military officers and the soldiers who serve under them regarding the willingness of the soldiery to take risks 
C)  the relationship between a restaurateur and the suppliers of produce to that restaurant regarding the freshness of the produce supplied 
D)  the relationship between a driver and the passengers in a car regarding the safe driving of that car 
A)  the relationship between a hire-car company and the persons who hire that company's cars regarding the treatment of those cars 
B)  the relationship between high-level military officers and the soldiers who serve under them regarding the willingness of the soldiery to take risks 
C)  the relationship between a restaurateur and the suppliers of produce to that restaurant regarding the freshness of the produce supplied 
D)  the relationship between a driver and the passengers in a car regarding the safe driving of that car

Question 13

In most corporations, to whom does the chief financial officer report?

Accepted Answer

A)  shareholders 
B)  the board of directors 
C)  the chief executive officer 
D)  the controller 
A)  shareholders 
B)  the board of directors 
C)  the chief executive officer 
D)  the controller

Question 14

Briefly discuss the issues in the agency conflict problem.

Accepted Answer

The agency conflict problem arises out o

Question 15

Use the figure for the question(s) below.  
-Using the above information, how much would you pay for a share of BHP Billiton stock?

Accepted Answer

A)  $41.91 
B)  $41.93 
C)  $41.65 
D)  $41.59 
A)  $41.91 
B)  $41.93 
C)  $41.65 
D)  $41.59

Question 16

What is the process of double taxation for the stockholders in a C corporation?

Accepted Answer

A)  Their shares are taxed when they are both bought and sold. 
B)  The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them. 
C)  The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. 
D)  The corporation must pay taxes on any profits it makes, and the capital raised by the sale of shares is also subject to taxation. 
A)  Their shares are taxed when they are both bought and sold. 
B)  The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them. 
C)  The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. 
D)  The corporation must pay taxes on any profits it makes, and the capital raised by the sale of shares is also subject to taxation.

Question 17

Explain some of the measures taken to reduce the agency conflict problem.

Accepted Answer

The agency conflict problem can be reduc

Question 18

What is the major advantage corporations have over other business entities?

Accepted Answer

A)  It is easier for a corporation to raise capital than other forms of businesses. 
B)  A corporation is treated as a separate legal entity for tax and legal purposes. 
C)  A corporation's shares can be freely traded among its shareholders. 
D)  All of the above are advantages that a corporation has over other business forms. 
A)  It is easier for a corporation to raise capital than other forms of businesses. 
B)  A corporation is treated as a separate legal entity for tax and legal purposes. 
C)  A corporation's shares can be freely traded among its shareholders. 
D)  All of the above are advantages that a corporation has over other business forms.

Question 19

How do the shareholders of most corporations exercise their control of that corporation?

Accepted Answer

A)  by voting on issues that concern them 
B)  by electing members of a board of directors 
C)  by vetting the decisions of the board of directors 
D)  by providing oversight of the day-to-day running of the corporation 
A)  by voting on issues that concern them 
B)  by electing members of a board of directors 
C)  by vetting the decisions of the board of directors 
D)  by providing oversight of the day-to-day running of the corporation

Question 20

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Accepted Answer

A) True 
 B)False

Exam 1: Corporate Finance and the Financial Manager

Why is a stock exchange like NASDAQ considered a secondary market?

Investments by wealthy individuals and endowments is a major source of money for each of the following EXCEPT ________.

What is the most common type of firm in the United States and the world?

What are the main differences between the NYSE and NASDAQ stock markets?

Why is the stock price of a company an indication of the performance of the company's senior managers?

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions?

Which of the following is a measure of the aggregate price level of collections of pre-selected stocks?

Stella places a market order with her broker to buy 1,000 shares of OneWorld Corp. The broker buys 1,000 shares at $16.00 each, and sells them to Stella at $16.15 each. He also charges a commission of $12.00. What is the total dollar amount spent towards the bid-ask spread in this case?

Which of the following is NOT a function of the board of directors?

In which of the following relationships is an agency conflict problem LEAST likely to arise?

In most corporations, to whom does the chief financial officer report?

Briefly discuss the issues in the agency conflict problem.

Use the figure for the question(s) below. -Using the above information, how much would you pay for a share of BHP Billiton stock?

What is the process of double taxation for the stockholders in a C corporation?

Explain some of the measures taken to reduce the agency conflict problem.

What is the major advantage corporations have over other business entities?

How do the shareholders of most corporations exercise their control of that corporation?

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters